Building Your Down Payment

Lots of borrowers qualify for various loan programs, but they can't afford a large down payment. Do you want to buy a new house, but don't know how to put together a down payment?

Slash the budget and build up savings. Look for ways to trim your monthly expenses to set aside money for a down payment. Also, you can look into bank programs in which a specific portion of your paycheck is automatically transferred into a savings account every pay period. You would be wise to look into some big expenses in your budget that you can give up, or reduce, at least temporarily. For example, you might decide to move into less expensive housing, or stay close to home for your annual vacation.

Work a second job and sell things you don't need. Maybe you can find a second job and save your earnings. Additionally, you can make a comprehensive list of things you can sell. Unused gold jewelry can bring a good amount from local jewelers. You may have desirable items you can sell on an online auction, or household items for a tag or garage sale. Also, you might want to consider selling any investments you hold.

Borrow your down payment from a retirement plan. Investigate the provisions of your specific program. Many homebuyers get down payment money by withdrawing funds from their Individual Retirement Accounts or borrowing from their 401(k) plans. You will want to ensure you know about any penalties, the effect this could have on taxes, and repayment terms.

Ask for help from generous family members. First-time homebuyers sometimes receive help with their down payment assistance from gracious parents and other family members who may be willing to help get them in their first home. Your family members may be inclined to help you reach the milestone of having your own home.

Contact housing finance agencies. These agencies provide provisional loan programs for moderate and low income borrowers, buyers interested in renovating a residence within a particular part of the city, and other groups as specified by each agency. Working with this kind of agency, you can receive an interest rate that is below market, down payment assistance and other perks. Housing finance agencies can assist you with a reduced interest rate, help with your down payment, and provide other benefits. These non-profit agencies exist to promote community in specific places.

Find out about low-down and no-down mortgage loan programs.

• FHA mortgage loans

  The Federal Housing Administration (FHA), a part of the U.S. Department of Housing and Urban Development (HUD), plays an important role in assisting low to moderate-income Americans qualify for mortgage loans. Part of the U.S. Department of Housing and Urban Development(HUD), FHA (Federal Housing Administration) assists individuals in getting mortgage loans. FHA offers mortgage insurance to private lenders, enabling new homebuyers who might not qualify for a conventional mortgage, to receive a mortgage. Interest rates with an FHA mortgage are generally the market interest rate, but the down payment amounts for an FHA mortgage will be lower than those of conventional loans. The down payment can be as low as 3 percent while the closing costs may be covered by the mortgage.

• VA loans

  Guaranteed by the Department of Veterans Affairs, a VA loan assists veterans and service people. This specialized loan requires no down payment, has minimal closing costs, and provides a competitive rate of interest. Even though the mortgage loans don't originate from the VA, the department certifies borrowers by issuing eligibility certificates.

• Piggy-back loans

  You can fund your down payment using a second mortgage that closes with the first. Often the first mortgage is for 80% of the purchase amount and the "piggyback" is for 10%. The borrower pays the remaining 10%, instead of putting the usual 20% down payment.

• Carry-Back loans

  In a "carry back" agreement, the seller agrees to lend you a piece of his home equity to help you get your down payment money. The buyer funds most of the purchase price through a traditional mortgage program and borrows the remaining funds from the seller. Typically you'll pay a slightly higher interest rate with the loan from the seller.

The satisfaction will be the same, no matter which approach you use to come up with the down payment. Your brand new home will be well worth it!